Link: Bridging the Gap Between Cognitive States

Jul 9, 2007: 7:43 PM CST

Have you ever wondered why you have a difficult time applying what you learned in your peaceful room to the actual frenzy of active trading?

Dr. Steenbarger discusses how to take what we study and analyze in quiet times (when the market is closed) and apply that knowledge properly when the market is open and trades are executed in real-time when price is moving constantly, likely creating anxiety.

He summarizes the post in this opening statement:

Behavioral finance researchers observe that our perception, judgment, and decision making in cold cognitive states–those in which we are reasoning analytically–tend to be different than when we’re in hot, emotional states.

Some go as far as saying that we are actually ‘two different people’ in different circumstances (‘cold’ vs. ‘hot’ or possibly ‘study’ vs. ‘active’). Thus, decisions are made differently and we arrive at poorer results that we anticipated, which enhances frustration and confusion if we don’t make the connection between the two states.

Read over the entire short article for tips on how to bridge the gap and look forward to the next post by Dr. Brett on this topic.

He also gives a bonus link to an earlier post entitled Inside the Trader’s Brain: Decision Making and Emotional Arousal that will be of great help to many traders.

1 Comment

One Response to “Link: Bridging the Gap Between Cognitive States”

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